2025 is expected to be characterized byacceleration of global growth and from a continuation of the recovery in corporate profits in emerging market (EM) stocks. Increased volatility should provide active investors with the opportunity to outperform, while the macro backdrop may turn out to be better than currently feared.
Emerging markets are positively oriented towards global growth, he explains Charles Walsh, Emerging Markets Equities portfolio manager at Mirabaud Asset Management. With the United States and China both set to receive a boost in 2025 – the former thanks to fiscal support and tax cuts, the latter thanks to stimulus from the authorities – we should see an acceleration of growth in the two major economies global markets, and this is precisely the context in which EM stocks tend to shine. At the same time, the earnings recovery that began in 2023 in the technology sector and has subsequently expanded should continue to support EM stock returns. These earnings are undervalued compared to the past and would be further supported by the recovery of global growth.
Trump tariffs
Many fear that Trump’s proposed tariffs are inflationary. However, these fears could be overcome if deregulation of the US energy sector leads to a reduction of fuel and energy costs. This offset to an otherwise inflationary event could provide a stable backdrop for EM shares.
The safest prediction for 2025 is that with Trump’s return to the helm of the United States we will likely see greater volatility. EM equities are a diverse and heterogeneous asset class, with risks to avoid and opportunities to profit from. With increasing volatility and dispersion of returns, 2025 will likely be a year in which active management proves its value.
China and Biden
Looking at the Chinafor Biden the fight against Beijing is ideological. China is the enemy to be contained and limited with every means available. Trump is transactional, focused instead on trade balance and on a better deal for American workers. Ironically, the expert points out, his return to the White House could herald a more rational approach to trade and a better relationship of collaboration between the two countries.
During Trump’s first term, tariffs were placed on some Chinese imports due to trade imbalances between the two countries. Biden was expected to be softer on China, but he actually kept Trump’s tariffs in place and added restrictions of his own. Even in his final weeks as president, Biden sought to further tighten China’s access to U.S. technology, regardless of whether this would harm the interests of the United States or its allies.
If the second Trump administration aims to arbring jobs to the United Statesthere are many Chinese companies currently barred from the US market (think BYD, which is subject to 100% tariffs on its electric vehicles) that would like to build factories in the US and have access to its consumers. The same was seen with Japanese auto companies in the 1970s and 1980s. And whether Trump will listen to US companies, especially tech giants like Nvidia who would like to sell more to China, some of Biden’s restrictions may even be lifted.
If Trump were to proceed with theimposition of severe dutiesChina has declared its intention to implement significant stimulus to offset any economic damage. A large dose of support in a country that is already investing significantly in its domestic resilience would provide strong support for Chinese stocks.
In any case, Trump 2.0 could be just what China needs for a good 2025.
